What is a Surety Bond?

Surety bonds are often misunderstood. Some people think they are a type of insurance, possibly because many insurance companies sell these bonds; however, they are not the same as insurance policies. Meadowbrook Direct can help you understand the difference. If you know you need a bond or think you do, but you have been wondering, “What is a surety bond?” we can guide you through the entire process of researching your bond and purchasing the exact bond required.

A surety bond is like a form of credit. At its root, it is a contract between three parties: principal, obligee, and a surety company.

  • Principal: the person who owes an obligation and who needs the bond
  • Obligee: the person to whom an obligation is owed
  • Surety: the company that guarantees the obligation will be fulfilled

When a person purchases a surety bond from a surety company, like Meadowbrook Direct, the surety company promises to be obligated to an obligee for an associated debt, conduct, or obligation of its principal. Should the principal fail in its obligation, the obligee can make a claim to the surety company in order to recover losses.

Differences Between Bonds and Insurance

We have many customers come to us needing bonds, but they still have the question, “What are they?” We explain to our customers that a bond is not insurance; rather, it works as credit does. If there is a claim against the customer (the principal), the surety company will require its customer to reimburse for any damages. With insurance, the insurer takes on any risk. In the case of surety, the company does not take on risk; instead, it accompanies the principal as a guarantor of a fulfillment of promise, but the principal retains ultimate responsibility for losses.

Meadowbrook Direct is in business to help customers with questions like this. We have many years of experience selling bonds and we look forward to the opportunity to help you understand and purchase yours.